DreamWorks Animation’s Desperation Move
With zero fanfare today, execs for DreamWorks Animation and its new distributor Twentieth Century Fox announced DWA’s 2013-2016 slate which includes 12 CG animated films in 4 years. That, the execs say, is a major industry first. What they’re not saying is that it also seems like a desperation move for this public company. Wall Street is, to put it generously, skeptical about DreamWorks Animation’s prospects. Of the 13 analysts who follow the company according to Thomson/First Call data, only one has a “buy” recommendation. Seven rate it a “hold”. And five designate it either “underperform” or “sell”. The stock is up 5.8% so far this year but that’s lousy since NASDAQ where DWA trades is up 20.4%. And over the last 12 months DreamWorks Animation is down 5.4% while NASDAQ is up 27.1%.
The basic problem for DreamWorks is that its business model appears to be crumbling. One major concern is that Jeffrey Katzenberg‘s formula of making parodies of movie genres as well as sequel after spinoff has run its course – and the new slate looks like more of the same. (As opposed to Pixar’s boundless creativity.) Competition is growing in computer animation not just from Pixar but from Illumination Entertainment and Blue Sky Studios and so on. DVD sales for family fare are declining at an alarming pace. 3D didn’t live up to anyone’s expectations even though Katzenberg negotiated with exhibitors for its exorbitant pricetag. (Yes, consumers, he’s to blame.) Production costs keep rising. Merchandise sales for recent movies including Madagascar 3 were disappointing. Live shows are only so-so. (DWA took a $5M impairment charge for Shrek The Musical). And so on.
Which were just some of the reasons why Time Warner, Comcast, and the Walt Disney Co weren’t interested in buying DreamWorks Animation when Katzenberg thought it would be a slam dunk deal. In truth, those moguls didn’t want Katzenberg in the fold. He came into Universal and then Paramount and arrogantly upended their home entertainment divisions. And it’s well known that he thinks he should be a Big Mogul inside Big Media and not on the outside with his nose pressed to the glass looking in and trying to suck the air out. The moguls still remember how, right after Tom Freston was fired at Viacom in 2006, David Geffen called up Sumner Redstone suggesting that the Viacom octogenarian hire Katzenberg to run the whole she-bang. (Redstone said, “Forget it.”) When I asked Katzenberg about his inexhaustible ambition during the phone conference announcing the DWA-Fox deal in August, there was uncomfortable silence. Then he said he was “now very old” and joked “I don’t suck air anymore”.
Related: DreamWorks Animation’s Release Schedule
Related: DreamWorks Animation To Fox For 5-Year Distribution Deal
Related: Geffen To Redstone: Hire Jeffrey. Redstone to Geffen: No.
It came down to only Sony and Fox becoming DWA’s latest Hollywood distributor after Katzenberg decided to exit Paramount for reasons still not clear because the studio did a good job. Sony was in talks. But Katzenberg spent time with Wendi Murdoch and, suddenly, the Fox deal was made. Lazard Capital Markets’ Barton Crockett considers Fox a strong partner but notes: “At one point, a bull argument was that talks for a new distributor could prompt a conglomerate to buy DreamWorks. That investor hope had faded, and is now gone.“
Analysts by and large were glad to see the company land a distribution deal, but along with Hollywood were unimpressed with the economics. Dreamworks agreed to pay Fox 8% for most distribution – the same as what it paid Paramount – and 6% for VOD, and digital rental and sales. DreamWorks will distribute its own domestic TV shows. Cowen and Co’s Doug Creutz says that the Fox deal “will not significantly change DWA’s per film economics” – and lowered his earnings per share estimate for fiscal 2012 to 90 cents from $1.12. Lazard Capital Markets’ Barton Crockett also cut his earnings forecast, calling the deal “slightly light” for Dreamworks. And Janney Capital Markets’ Tony Wible says the Fox deal – while good for DWA — “may be a disappointment to some bulls expecting cost savings from self-distribution or better terms.”
Even Katzenberg’s efforts to build ‘Dream Center’ Park in Shanghai with China partners are dismissed by those who know that film landscape as unrealistic and unlikely. His big talk about creating a DreamWorks channel has no specifics. Meanwhile the company rises or falls on the performance of just a few films anually.
To be honest, I think that Katzenberg is THE industry rube who is using all these “power” moves to make some sort of point here and it’s really illogical to make 12 films in four years–like his point is that he wants to outperform Pixar in how much product he makes in that span of time is as meaningless as a dick-measuring contest. That being said, however, I think that Katzenberg is a really smart businessman, but his philosophies and practices under an ever-volitile, ever-changing marketplace is simply unrealistic and DWA will be unable to thrive and will close down within decade’s end. You see, I really have no need to explain why this studio is struggling, and its mentioned in the article. The issue, and JK is completely approaching this the wrong way, is not how many movies you can make, its how good you can make them. As proven with any good movie: the better the word of mouth is, the more likely of audience turnover will occur.
The big mistake that DWA made in the first place is that JK made this studio to exclusively make their projects in 3D. The problem is that not many people love 3D–don’t get me wrong, I’m in the minority when it comes to the debate of using 3D, but in the case of DWA, most of their movies are not even deserving of the use of this format; in essence, most of DWA’s movies as of late SUCK.
The frustrating thing is that there are flashes of genius, followed by two or three movies that wallow in mediocrity. I loved everything about How to Train Your Dragon…great story, beautiful animation and lots of humor and heart. It was followed a couple of months later by Shrek the Final Chapter and Megamind which I found lacking in most of the same areas. I thought Kung Fu Panda 2 was a lovely film that improved on the original and had something meaningful to say about adoption without being preachy. It was followed by Puss in Boots and Madagascar 3 which I felt were both rather slight and didn’t aspire beyond what the titles implied. If Dreamworks Animation could create a more consistent and endearing product, I think there would more interested buyers whenever that talk swings around again.
I’m with you on the 3D. It might sounds great to an adult but not for children (I saw most of Dreamworks and Pixar”s animated films and every single time, children were crying when a 3D effect was too hard to watch). JK (and James Cameron as well) can’t go back to 2D though because he was the format ambassador. Only choice would to give the choice to the exhibitors.
For the rest, I can’t really agree. This year, on the Top 10 grosses, 4 were animation so there’s an audience for that. Only the future will tell if it’s a good idea to have 3 Dreamworks films a year with a tough competition. Animated films used to be a one-time-a-year event and most of them finished number one domestic (Aladin, Toy Story, Shrek 2…).
Regarding the sequels, all the animated studios (Pixar included) are making them and that’s normal. Children want and love to follow a character’s evolution. Disney used to do this all the time as direct-to-VHS (since the quality wasn’t as good (Lion King 2, the Return of Jafar…), I think it was the best format to do them) but it became a-la-mode to release them in theaters probably since Toy Story 2 and the sequel model proved to be a solid one. The only lesson (and it’s the same for non-animated films) is don’t make them if they’re not superior to the original.
Last thing: I don’t believe that JK is a rube. I do believe he’s a hard-working man. He proved it at both Disney (which owes him a lot) and the beginning of Dreamworks animation is a tough act to follow. DWA only had one competitor when it started. Since then, great animated studios started making great films and the competition is now tough. Fox is making a strong statement by having DWA along Blue Sky.
Again, only the future will tell us who was right.
“Pixar’s boundless creativity” : that’s why they’re releasing 3D versions of their movies as well as the Monsters, Inc sequel, I guess. Boundless indeed.
I just saw BRAVE on a plane. Wow, what a mess. It felt like they had huge production problems and had to cobble together what was finished so they could meet a release date. Anyone know the inside scoop?
Maybe more bears would have helped.
thank you!!!
They need to upend their whole approach to scripts. There’s been too much pedestrian writing and concepts. Pixar certainly has them beat here with their originality, humor and willingness to go out on a limb.
“Pixar’s boundless creativity.” Really? You mean like Cars 2, Monsters, Inc. 2 and Finding Nemo 2?
thank you!
Well, Pixar has more original films now, so their going to be making more sequels. Don’t bash the films before you see them. (Well, Cars 2 aside, because that one just wasn’t good.) They announced that they are making three more original films, so don’t go saying “Pixar is just making sequels now.”
I am writing from Shanghai. I belong to 3 Hollywood labor unions and Guild. I worked in the studio system for 20 years. Having worked in the film industry for 12 years in Shanghai and greater China, I can say without any reservation that the investors should refuse this idea to build a center here. This industry is way beyond mediocre and the Chinese rape any production that comes here and the productions end up by running out of here as fast as they can. It is colossally bad idea.
China ia subsidizing these facilities/business deal in return for the knowledge they seek to acquire. For US companies…it is all about the Benjamins. The US folks hope the transfer of skill sets begin to work, because they will then have a ‘cheap’ labor force which can do the work or, at least, portions of it.
The risk/reward is worth taking a shot. China is not going away, and it has the cash resources to continue to purchase experienced talent to train their people.
Watch how many quality artists are sent to China to supervise this effort.
It may not be an idea which is popular in the states, and it will take more time than anticipated…but,
over time it will be what it will be…probably successful….depending on how success is defined for the players.
Other than time, effort and some investment, what do they have to lose? Job loss in the states is not on the agenda as a concern in any way. Plus, as an added bonus these partnerships will provide far greater access to the booming Chinese market for product distribution.
Big ego and no respect.
And Dreamworks was a bad idea
Don’t forget buying Classic Media just seemed to be for the sake of becoming bigger. You’re probably not going to see much money from Disney Lone Ranger royalties.
Compared to Spider-Man, that is.
If you can’t figure out why Dreamworks ditched Paramount, you aren’t paying attention.
It’s because they though they could make Rango 2?
Then I haven’t been paying attention. So, why?
DWA is doing what is mostly seen as a “child’s” medium, such as animation.
And if you look at the playing field for that medium, it is MOSTLY sequels that go direct-to-video.
Disney has mastered the genre, releasing LADY AND THE TRAMP 2, LION KING 2 (and LION KING 1 1/2 for that matter).
I expect to less and no more from DWA or Pixar. Maybe a heavier hand from Steve Jobs could have kept Pixar from making NEMO 3 or INCREDIBLES 2. But at least they waited until his passing to announce plans for the former. And you know the latter is coming, now that AVENGERS has made $1.5B.
So between the THREE movies that DWA will produce a year Fox (including whatever their own Blue Sky Studios gives them) will release at least FOUR CG animated family films a year?!
In what way does that make sense to anyone? Talk about a slap to the face. I’d expect a mass exodus of talent from Blue Sky once the dust on this settles and everyone sees where they stand.